Capital gains taxability and set-off rules under the 1922 Act were applied to mixed factual and computation results.

Capital gains were not taxable where, on the facts, the assessment yielded an overall loss and the gains were absorbed in the computation of income, so no tax levy arose on that component. On set-off, capital gains, though assessed under a separate head, could be adjusted against loss under another head for computation and carry forward under section 24(1) of the Income-tax Act, 1922, and the Tribunal should not have excluded that adjustment. The reference thus reflected a mixed position: relief on the taxability of capital gains and acceptance of the revenue's position on the set-off principle.

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Issues: (i) Whether capital gains arising to the assessee were liable to capital gains tax in the facts of the case. (ii) Whether capital gains could be set off against business loss to be carried forward under the Income-tax Act, 1922.

Issue (i): The assessment resulted in an overall loss after computation under the relevant heads, and the capital gains were absorbed by that loss. In such a situation, no levy of tax on the capital gains could arise.

Conclusion: This issue was answered in favour of the assessee.

Issue (ii): Under section 24(1) of the Income-tax Act, 1922, capital gains, though falling under a distinct head of income, could be adjusted against loss under another head for the purpose of computation and carry forward. The Tribunal ought not to have excluded such set-off.

Conclusion: This issue was answered in favour of the revenue.

Final Conclusion: The reference was disposed of with one question decided for the assessee and the other for the revenue, resulting in a mixed outcome on the tax liability and set-off computation.

Ratio Decidendi: Capital gains, though assessable under a separate head, may be set off against loss under another head in computing the taxable result under section 24(1) of the Income-tax Act, 1922.

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